Mutual Funds Take a Rs 6,000-Crore Hit as IndusInd Bank Share Price Plummets: Here’s What Investors Need to Know

The financial community was in a flurry on March 11 when IndusInd Bank share price dropped by a whopping 20%, eroding more than Rs 6,000 crore from mutual fund holdings. This precipitous drop followed the bank reporting a 2.4% hit on its net worth arising from fluctuations in the valuation of derivative transactions. For investors and mutual funds who own stakes in IndusInd Bank, this is a signal of the perils of holding banking stocks.

In this blog post, we will explain how this downfall affected mutual funds, which funds were hit the hardest and what it implies for the future of IndusInd Bank stock price. We will also discuss whether this failure is a temporary glitch or an indication of underlying issues in the bank.

Scale of loss: Mutual funds bear the brunt

According to available data from Ace Equities, mutual funds in total held over 20.88 crore shares of IndusInd Bank worth around Rs 20,670 crore as of February 2025. But after the recent share debacle, the worth of such holdings dipped to just Rs 14,600 crore – a mind-boggling loss of over Rs 6,000 crore.

This is no small hiccup for mutual funds; it is a major one. Worst hit are some of India’s largest mutual fund houses:

👉 ICICI Prudential MF: The fund has the largest position in IndusInd Bank worth Rs 3,779 crore.

👉 HDFC MF: Following closely behind them, HDFC MF too has positions of Rs 3,564 crore.

👉 SBI MF: SBI MF takes the third place with a stake of Rs 3,048 crore. Others key players such as UTI, Nippon India, Bandhan and Franklin Templeton MF are also big time players with stakes between Rs 740 crore and Rs 2,447 crore. These are the mutual fund investment in IndusInd Bank – and fears of any change in its share price.

Why did the IndusInd Bank share price decline?

The precipitous drop in IndusInd Bank share price was one that did not have to be. It came after the bank reported that its net worth had been impacted by 2.4% due to a change in valuation of derivative transactions. While a tiny percentage, it translates into an estimated profit shortfall of around Rs 1,500 crore in Q4 FY25, states Moneycontrol.

But the problem is this: while the loss in terms of money is contained, the bigger problem is credibility. Experts opine that trust can be restored – maybe within a period of a couple of quarters. IndusInd Bank took proactive steps to address concerns that were mounting, hiring an independent external agency to audit and confirm its own internal reports. The move was to provide assurance to investors that the bank was serious about transparency.

Kotak Institutional Equities recently issued a cautionary note, cautioning against another adverse incident. He emphasized the importance of the action taken by the board in judging the situation and taking steps so that such an incident does not recur in the future. The financial loss, while unlikely to be detrimental to the bank’s interest, could have a negative impact on reputation, which would be long term unless addressed earliest.

A Timeline of Events Leading Up To The Crash

To comprehend fully the gravity of things, let us take it back to time and on the timeline of events that led to the crash in share price for IndusInd Bank:

👉 April 2024 – January 2025 : Mutual Funds poured in a whopping Rs 10,200 crore during these months to IndusInd Bank. The share price peaked in April 2024 at Rs 1,576 per share, making it one of the most sought-after banking stocks.

👉 February 2025 : Things slowly started to fall apart. According to Ace Equities, mutual funds withdrew close to Rs 1,600 crore during this month itself, a clear sign that confidence is waning among institutional investors.

👉 March 11, 2025 : The bombshell dropped. IndusInd Bank announced the 2.4% impact on its net worth to trigger the panic selling among investors. The share price slumped by 20%, wiping out billions in market capitalization. The stock fell more than 54% from its high in April 2024, shocking the investors.

Will IndusInd Bank share price bounce back? Know what the experts believe

Although the present scenario is not very promising, there is still a glimmer of hope of revival. According to Kotak analysts, improved performance in some industries will revive investor confidence:

👉 Asset quality of microfinance portfolio: IndusInd Bank’s biggest problem has been its microfinance portfolio. If the bank is able to showcase better asset quality and lower non-performing assets (NPAs), this would go a great way in regaining confidence.

👉 Deposit expansion and liquidity: The ability of the bank to sustain deposit expansion and maintain adequate liquidity is another silver lining. These factors could eventually turn this event into a one-off mistake and not a structural flaw.

But a great deal will hinge on how effectively the management handles the crisis of credibility. Engaging an independent agency to audit its processes is welcome, but short of action, it will be seen as lip service. Investors will anxiously look for what the bank does instead of what it says.

Lessons for investors: Diversification is the key

Retail investors, who have been invested in mutual funds that have invested a lion’s share of the portfolio in IndusInd Bank, will find it impossible to turn a blind eye to diversification after witnessing it. When a stock is a lion’s share of the mutual fund portfolio, the initial fall in the share price acts as a ripple effect.

Some lessons for investors

👉 Watch fund structure: Always ensure your mutual fund is investing in the right location. Over-investment in risk-taking sectors such as banking can generate risk.

👉 Watch corporate governance: See how firms handle crisis cases. Transparencies and accountabilities are good predictors of long-term stability.

👉 Look to the future: Short-term falls should not be used to divert your investment strategy. Instead, look at fundamentals and see if the firm can bounce back.

Last Words: Is IndusInd Bank still a bet worth making?

Recent plunge in IndusInd Bank shares has actually left investors and mutual funds gasping for breath. With increasingly mounting losses and credibility issues piling up, the task of getting back on track is not going to be a cakewalk. But the bank’s decision to outsource auditors and close loopholes in financial figures does hold them some hope.

If one is planning to invest in IndusInd Bank or mutual funds that have invested in its shares, then wait and watch. Observe how the bank re-engineers itself in solving its issues and observe whether its fundamentals are suitable for your investment.

Ultimately, though, those errors come with a price and learning one’s along with it. Whether or not the share price of IndusInd Bank recovers is yet to be seen, but one thing is for sure: resilience and adaptability will map its future course.

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